More Doleful Responses

From Tom Hintz: “Now that your true colors have come out (a dyed-in-the-wool bleeding heart liberal), I need to correct you on just a couple of points. (To try and refute all of your points would be more of a waste of my time.) To start with, look at a graph of capital gains tax receipts since before the increase in 1986 to now. Although there was an initial pop in revenues prior to enactment of the new law, revenues have never lived up to expectations and overall have declined, not to mention the unfavorable effect the tax increase probably has had on the economy. A decrease would probably have the opposite effect. Also, for us ‘rich’ folk out here trying to save for our children’s education and our retirement (I don’t count on social security being around) and with a good deal of equity in our homes, I don’t think you can say that the capital gains tax cut primarily benefits the rich. I do know that when the law changed in 1986, my capital gains tax increased 100% (from 14 to 28%)!!!”

I agree there would be a short-term increase in tax receipts, as people who’ve been waiting for years for a lower capital gains tax took profits. (With such a sharp cut in the tax, I think you could also expect a pretty sharp break in prices, with a lot of new eager sellers.) I’d like to see a smaller, more gradual capital gains tax cut.

For better or worse, the estimate I saw is that 55% of the benefit from the reduced capital gains tax would go to the 1% wealthiest Americans (better for me, being one of them; worse, perhaps, for everyone else, on whom the cost would fall). One way to avoid the capital gains tax bite on your retirement money is to keep it within tax-sheltered vehicles like IRAs, and so on. Another way to minimize the capital gains tax bite: to follow the lead of successful investors like Warren Buffett and not sell too often. A third (since you mention the equity in your home) is to take advantage of the tax exemption when you buy a new home, and/or the one-time over-age-55 $125,000 exemption on your primary residence.

But the great bulk of the Dole tax cut isn’t the capital gains tax cut. It’s the 15% income tax cut. That’s where I have the real quarrel.

“As far as your reference to Dick Armey, he never suggested using cuts in education to pay for the gasoline tax repeal. Why don’t you dig out the entire video clip of his answer and stop relying on what you read in the paper. He was using education as one example of where we have increased spending dramatically without showing much for it. Maybe using this as an example was a poor choice, but he still has a valid point.”

I was actually relying on the video clip I saw on the news. But if he didn’t really mean it, I’m relieved. I do know that a lot of kids in this country are without textbooks, sitting in overcrowded classrooms. Money doesn’t solve everything, but it can buy books and pay teachers. Economically speaking, it’s probably better to invest in kids than, say, give wealthy septuagenarians tax breaks. Nothing against wealthy septuagenarians; but that’s not where the leverage is. Their productive years are largely over; there’s little chance of their becoming violent criminals or lifelong burdens on society.

“One final word. Back in the early 50’s, people payed about 13% in federal income taxes. Now they pay 21%. A married professional couple, both working, have over 40% of there money taken from them today. (21% federal, 15% FICA, other local, state and sales taxes.) The federal budget in 1960 was around $100 billion. Now it is $1.5 trillion. Get the picture? And if you think you don’t deserve the tax decrease, you can always pay the government more than you legally owe. Hey, and if enough of you rich liberals on Wall Street and Hollywood get together, you might even erase the budget deficit by yourselves!”

Now, there’s an idea. Actually, back in the 50’s the top federal income tax bracket was 90%; today it’s about 39.6%. So I’m not sure the rich are over-taxed at these rates, either historically or by comparison with other countries. As for the huge federal budget, it is huge. You’re right. But as one of my columns last week asked, what would you cut painlessly to pay for Dole’s $548 billion tax cut? And if not painlessly, on whom would you inflict the pain? Not me, obviously — and I’m grateful for that — and not you . . . so who? Medicaid recipients? Veterans? School kids? As you know, most of that $1.5 trillion goes to seniors, via Social Security, Medicare and Medicaid, and to defense.

But I certainly appreciate your frustration, as well as your taking the time to write. I just can’t figure out a way to cut taxes 15% and balance the budget. And I don’t think Bob Dole believes it for a minute.

From Cola Allen: “It is NOT Mr. Clinton’s or Mr. Dole’s or even Mr. Perot’s money you discuss. These ‘tax dollars’ are my kid’s tuition, medical coverage, vacations – OOPs – would have been. Since these are tax dollars my kids don’t get THOSE dollars.

“No sane person would suggest that we don’t have to balance the Federal budget. My ideas are rather simplistic. The I.R.S. is the most inefficient method of revenue collection a madman/pol could devise. I believe it to be an information gathering arm of the government (but please don’t tell them). Close the I.R.S. and save BILLIONS per year and we have NOT taken a crumb of welfare food or nuclear missile out of the budget yet!

“The number of man hours private citizens and business spend keeping the I.R.S. fed each year could be put to use growing the G.D.P. and becoming very strong globally. What to replace the I.R.S. with? I don’t know, a national sales tax has potential. Better minds than mine can easily handle that question.”

I’m not sure it’s the I.R.S. you mean to replace so much as the wildly complex tax code the I.R.S. is charged with enforcing — a creation of Congress. I’m all for simplifying it, though by and large it is the business end that is complex and time-consuming. Most people can get their personal taxes done in an hour for $50 or $100 at H&R Block (or wherever).

One problem is that any change that costs a taxpayer more will be opposed by that taxpayer — and rich special interests can block most reforms — while any change that costs less will widen the deficit. So the best time to make changes is when (a) they’ll result in lower taxes across the board (and thus encounter little opposition) and (b) lower taxes are the right prescription for the economy (i.e., in the midst of a recession).

You already know I don’t think this is a sensible time to be cutting taxes dramatically. But what a double-shame, if we do, not to couple it with tax-simplification that, as I say, is probably only possible to get people to accept when it lowers their taxes.

Just to cut everybody’s taxes 15% — besides unfairly favoring the best-off and being stupid right now — blows the opportunity to use the tax cut to “buy” tax simplification.

From Dean Van Druff: “Has it ever occurred to you that you could raise revenues by lowering taxes?”

Yes. And it certainly works in a situation where taxes are so high they’ve crippled the economy or people simply refuse to pay them. But that’s not the situation now. (If it were always the situation, we could lower taxes to zero and still increase revenues. No?) I think in today’s circumstance the term for this is “wishful thinking.” (In an earlier day, it was “voodoo economics.”)